Trump Tariffs Could Shift Oil Trade Dynamics to Asia

In recent developments, the potential for U.S. President-elect Donald Trump to impose a 25% import tariff on crude oil from Canada and Mexico has raised significant concerns and expectations in the global oil market. Traders and analysts suggest that if these tariffs are enacted, oil producers in Canada and Mexico may have no choice but to lower their prices and redirect their supplies to Asia. This shift could lead to a notable change in the dynamics of oil trade, particularly benefiting Asian markets.

Canada and Mexico are crucial players in the U.S. oil import landscape, accounting for 52% and 11% of the total gross imports, respectively. The U.S. Energy Information Administration has highlighted that the United States relies heavily on these two countries for its petroleum needs. With the U.S. importing 61% of its waterborne oil from Canada and 56% from Mexico, any changes in trade policy could have far-reaching implications.

As Canadian waterborne crude exports have surged by 65% to approximately 530,000 barrels per day in 2024, largely due to the expanded Trans-Mountain pipeline, the stakes are high. Analysts like Daan Struyven from Goldman Sachs have pointed out that if Canadian producers face export limitations, they may have to offer deeper discounts to attract buyers in Asia, which could lead to revenue losses.

Heavy high-sulphur crude, primarily exported by Canada and Mexico, is essential for complex refineries in the U.S. and Asia. A Singapore-based trader noted that the impact of tariffs would predominantly affect heavy grades of crude oil. With limited options for U.S. refiners, the burden of the tariffs would likely fall on either the producers or the refiners, forcing Canadian producers to lower their prices further to remain competitive.

As the situation unfolds, analysts predict an increase in the flow of Canadian and Mexican oil to Asian markets, particularly China and India, where refiners are equipped to process these grades. The recent rise in TMX exports to Asia indicates a growing interest from Asian refiners, especially as they experiment with new crude grades.

However, it is important to note that Mexican crude exports have seen a decline of 21% this year, averaging around 860,000 barrels per day. European refiners are also expected to be cautious, as they typically do not import much Canadian crude. Energy Aspects analyst Christopher Haines mentioned that while tariffs on Mexican oil could potentially benefit Spanish refiners, the competition for crude oil in Asia could intensify.

Despite the looming threat of tariffs, some traders and analysts remain skeptical about whether Trump will follow through with this plan. Historically, he has used tariffs as a negotiating tactic, and imposing them could lead to inflationary pressures for U.S. consumers and refiners.

The potential imposition of tariffs on Canadian and Mexican oil could reshape the global oil market, particularly benefiting Asian countries. As the situation develops, stakeholders in the oil industry will need to closely monitor these changes and adapt their strategies accordingly. The interplay between tariffs, pricing, and international trade will undoubtedly have lasting effects on the energy landscape.